Selling Your Business to a Competitor: How To Guide

Strategic acquisition by a competitior is one of the best ways to exit. This guide covers the ins and outs of selling your business to a competitor.

Being prepared to sell to a good offer is always a good strategy when building a business. For strategies like website flipping, the sale is in mind from day one.

Even if you’re developing an online business where selling isn’t the final goal, it still makes sense to be prepared if the right offer comes along.

Selling a business to a competitor is a process. It’s important to understand that process and the potential challenges to make sure you get a good deal on any potential sale.

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What Qualifies a Business To Be A Competitor? 

In my eyes, any business in the same online niche with a percentage of market share or even a strong foundation that gives the potential to make a major move into a niche. There needs to be some established value to be a competitor.

This could be a certain amount of monthly traffic and rankings from Google, strong & active social media communities, original products, or a combination of these factors.

The business needs to have some sort of a footprint, the ability to expand in the niche, and have value that makes it worth acquiring, or gives them the resources to acquire my business.

Most of the time, a competitor is also a business in the same weight class. For example, a local pizza chain with six restaurants might be competing with other small restaurants, but they’re not competitors with Domino’s or Pizza Hut, which are on another level entirely.

Why Do Competitors Become Buyers?

Competitors becoming buyers isn’t uncommon. Acquisition of your business might be a way to further boost their own presence in a niche. They might be looking to expand influence, or even are simply looking for a portfolio of online businesses to diversify investment.

If you show clear value in an industry they are trying to dominate, acquisition is often a better strategy for them than trying to compete over the long-term. 

Buying your business not only boosts their business, but it also lessens the competition in the space.

How To Handle An Acquisition Offer From a Competitor?

The first step is to be prepared before any offer comes. You need to have up-to-date profit & loss statements available, an understanding of business valuation, and have at least an idea of a process to field legitimate offers.

This way when an acquisition offer is made from a competitor, you’re ready to negotiate and present a counteroffer. Here are some other potential steps for this situation:

  • Decide whether or not you are open to selling at the moment, or feel more development is needed for an optimal price
  • Prepare to provide the same necessary information you would ask for if you were doing due diligence on a sale
  • Don’t commit to anything up front, but try to get a sense if the offer is in an appropriate purchase range
  • Get any legal representation necessary to protect your interests
  • Agree upon a due diligence, escrow, post-sale support, and sale process with the buyer and put it down in writing
  • Negotiate as needed to close the deal

If you’ve acquired other businesses or been involved with website flipping, that experience can help since much of the process is the same – but as the seller you’re on the other side of it.

How Do I Approach Competitors About Selling My Business To Them?

Approaching a competitor isn’t as easy as just shooting off an email. A good pitch takes time and preparation, especially if you want a reasonable offer that is anywhere close to what your business is worth.

There are four very important factors to look at when approaching a competitor for a possible buyout.

Get a Proper Valuation

A proper valuation is crucial, and I always recommend preparing a full profit & loss statement and business profile before testing the waters. A content website will have a different valuation than a SaaS business, and the seller needs to know what their business is worth based on industry norms.

Having an appropriate business valuation that you can defend is crucial to both showing that you’re serious as a seller, and making sure a reasonable price is in play.

Put Agreements In Place To Protect The Business

A business sale is going to involve in-depth due diligence and that means sensitive information is going to be made available to buyers who are still competitors if the sale doesn’t go through. This is a challenge, and that’s why it’s important to put agreements in place that protect your business.

This needs to be individualized for each deal but may involve things like when certain information is shared, or agreeing on what is not shared or is put under NDA until the commitment to buy is made.

The hope is that all offers are made in good faith, but it’s always important to put protective agreements in place as if they are not.

Due Diligence Takes Precedence

Never give up control of your business when there are red flags at any point in the process. You want to make sure the offers are legitimate, and protect yourself every step of the way.

Both sides have due diligence in a deal, and while you’re going to need to provide information requested by the seller, until the deal is done they’re a competitor. 

That means it’s reasonable to protect yourself and keep some information off the table until a contact is agreed upon and to make sure the buyer is taking all the right steps to make a fair acquisition.

Know Who You’re Working With

Do the buyers approaching you have a LinkedIn page?

Do they have a history of acquisitions or are they well-known in the niche?

Doing proper research is crucial before agreeing to any type of a deal.

Don’t ignore any red flags and do your research to make sure the potential buyers are legitimate.

If you know who the biggest competitors in your space are, you can research them to figure out the best people to approach for a potential sale. 

What Do You Need To Sell a Business?

Selling a business takes work and it’s important to do a large amount of preparation to make the selling process as easy as possible.

It will be a lot of work no matter what, but a little preparation goes a long way to making the sale easier for both parties.

At a minimum you will need:

  • A profit & loss statement
  • Traffic & analytics data
  • Monthly revenue statements for at least the past year
  • A business prospectus going over all online and offline properties, detailed content information, what’s attached to the business, etc.
  • A good in-depth explanation for why you’re willing to sell

Different businesses will have additional business requirements like lists of contracts, contact information for freelance or remote workers, standard operating procedures, anything relating to how you currently run the business.

What Does An Offer To Buy Your Business Look Like?

An offer to buy a business might start with an email or phone call, but the actual legal offer is going to involve contracts and cover multiple important points.

A business offer needs to:

  • Be in writing
  • Involve a Letter of Intent (LOI) or full purchase agreement of some kind
  • Be reviewed by a legal expert
  • Mention total purchase price in writing
  • Discuss all terms of payment including down payment, financing, escrow, and time table for any later payments

This comes during the buying process and remember, until it’s in writing and signed it’s not binding in most cases.

FAQ  Frequently Asked Questions

How do you sell to a large business?

Selling a large business goes through the same process as selling a small one, but expect due diligence and negotiation to take much longer. Depending on the size of the business, having legal representation is often strongly advised.

What should I never share with a buyer before I receive an offer?

Never share sensitive information like passwords, product secrets, specific growth plans, or sensitive information up front. There are ways to share Google Analytics and view (confirm) affiliate sales without giving editorial control.

This is information that shouldn’t be revealed until the sale is deep in negotiation and you know the offer is serious and being negotiated in good faith.

Due Diligence Services

These firms rely on our M&A expertise

These firms rely on our M&A expertise... ecommerce firm
pearl west amazon FBA acquisition firm
venture kite is a content website investment firm

Hire our team to conduct due diligence on your online business acquisition.

Get a 20-page due diligence report jam-packed with insights.

View all services, or choose your business type below:

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Mushfiq Sarker

Mushfiq is the founder and lead advisor at WebAcquistion M&A firm. He has actively transacted on 218+ website acquisitions since 2008. His expertise is in due diligence of content, Amazon, eCommerce, and SaaS businesses.